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Net Net: Promoting innovation and managing change

Study On Swipe Fees: Consumers Paying More At Retailers, Not Less


Both sides of the Durbin Act have been taking their swipes on the interchange fee decision from the Fed for months.

Retailers have been vocal against the high swipe fees because they said the fees would add to the product prices, and if the fees were lower, they could pass along those savings to consumers translating into lower prices.

Well, its been a little over two months since the Durbin Act has been implemented, so how are consumers fairing? The Electronic Payment Coalition (EPC) which represents credit card giants, MasterCard , Visa, Capital One , Wells Fargo and the regional and independent bankers tracked the prices of products starting a week before the act was implemented to the beginning of December. Can a trade group for credit card issuers really be trusted?

Trish Wexler, spokesperson of EPC argued why this study is not biased.

LL: Your memberships include MasterCard, all of the trade associations that represent the full credit unions independent community bankers, etc. Why should the readers believe the research of this study is legit and not biased?

TW: This is preciously why we were careful in keeping all of our receipts. (link here) No one can shoot holes in this research because we know the retailers would say this study is not legit because of who we represent. The facts speak for themselves.

LL: How much of these stores saving in interchange fees?

TW: We estimated the stores have already pocketed the $825 million in savings by paying less interchange fees since October 1. Its about eight billion a year in savings as a result of this. Of course the Durbin Amendment was predicated on the concept that the consumers needed this because they were paying higher point of sale prices and if the fees were lower it would imply prices on products would go down. Based on our findings, this did not happen..

LL: So consumers are not paying less?

TW: Our research looked at 21 different retail locations in six different U.s. cities out of those locations. 12 raised prices by five point one percent or kept prices the same, four stores kept the same prices and five stores lowered the price by an average of five point eight percent.

If you look at the overall results, customers are paying more one point seven percent more. The retailers we visited were Home Depot (HD), Wal-Mart (WMT), 7 Eleven and Walgreens (WAG). These stores were also the most vocal in passing savings over to the consumer meaning they would lower prices. We looked at an entire basket of goods at these companies. On average, shoppers paid:

  • $1.07 (or 3 percent) more for the same items at Wal-Mart in Boston, Massachusetts
  • $0.73 (or 2.9 percent) more for the same items at Walgreens in Little Rock, Arkansas
  • The same price for the same items at Home Depot in Atlanta, Georgia

LL: When did you visit these companies? How many times did you visit?

TW: We visited and purchased a consistent list of products during four separate shopping trips at each store: one in the final week of September, before the October 1 implementation deadline, and three additional times following implementation.

LL: So, the companies are making even more profit?

TW: Yes. In the last two months if you at the industry as as a whole, they have seen an additional $825m in profit.

LL: Two weeks ago, the National Retail Federation, National Association of Convenience Stores along with other merchant organizations filed a lawsuit against the Federal Reserve claiming they should be paying less in debit card interchange. What should be the retailer's "fair share" in this system?

TW: They should be paying what they were paying before the Durbin Amendment was implemented. It was the amount the free market was setting on this system. Retailers benefit from this system. They get increased security for their transactions and they want this benefit for free.

LL: If the retailers won this lawsuit, could the customers be footing more of this bill?

TW: Its estimated that the entire world of debit interchange is somewhere in the $15 billion mark so when the Fed slashed the average debit charge from 44 cents to 21 cents that translated into a 50 percent reduction in what retailers are paying.

So essentially every additional penny the retailers can cut will translate into hundreds of millions of dollars more in savings for the retailers. In the end, the consumer is netting on the wrong side of the deal. The greed being displayed by the retailers is a hypocrisy.

They should be paying what they were paying before the Durbin Amendment was implemented. It was the amount the free market was setting on this system. Retailers benefit from this system for increased revenue they get by accepting cards. People tend to buy more with cards than on plastic. They also get security for these transactions and they want this benefit for free.

The retailers got $8 billion in additional revenue and they are upset about it and they want more. The retailers are not passing the savings over to the consumer. Now granted it is early but it is an issue many will be looking at next year.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."